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ROI calculations underestimate the value of open source software

Report guides customers through cost analysis of open source vs. commercial software, but customers often focus on license fees, ignore flexibility of resulting applications.

Businesses and integrators talking about projects based on open source software may both be underestimating the ultimate benefit, according to a report from the 451 Group, an IT analyst firm based in New York.

The 50-page report is designed to walk IT managers through a fundamental business analysis and includes a spreadsheet that can help them decide whether going open source is the right move for their company. Channel companies may also find the report useful as they present open source solutions not just to a potential client's IT manager, but to the chief financial officer, who must ultimately approve the contract.

Most companies are lured to open source solutions because they don't have to pay to license software, according to Raven Zachary, the senior analyst and practice head at the 451 Group who authored the report.

The report, and others like it, offers two main benefits to value-added resellers (VARs), Zachary said. First, the cost savings from the free licenses let them pitch a solution with a lower overall cost, or one with a higher profit margin. Once the system is deployed, VARs are able to develop the product itself to tailor it specifically to the customer's needs.

"What we found is, lower cost still remains one of the top reasons for adoption, and we believe that cost savings as a motivation for adoption isn't going away soon," Zachary said. "Once they've actually implemented open source, what we find is that flexibility certainly grows in terms of the value of open source."

He said that flexibility is a less tangible benefit than what he called the "short-term thinking" of license savings, but customers usually recognize its benefit once the system is adopted.

Zachary also warned that license costs may not keep the open source market afloat forever. While 73% of companies that used financial criteria to pick open source software cited licensing costs as their first consideration, those are only a small part of a project's overall cost, he said. When one factors in the cost of implementing a new system, including retraining the company's IT department, they become even less significant.

Zachary said that the marketing pitch for open source may need to change if companies start taking this larger-picture approach. As more companies adopt open source technologies, VARs will also have to convince potential clients that their open source solution is better than a competitor's without using license costs as a trump card.

"Once the major costs savings element is gone -- or at least the perception -- it may present challenges," Zachary said.

Clive Bearman, SUSE Linux Product Marketing Manager at Novell Inc., said that companies look at their existing infrastructure when deciding whether to switch. Rather than putting Linux on a working system, he said, many customers will stick with their existing operating system until they have to replace the hardware.

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"The trend over the past few years is actually for people to leave stuff running until they really have to move it, so we see that SUSE's been adopted, and Linux has been adopted, for new workloads," he said. "Then you can say over time, 'I've now got my Linux skills, what else might it be used for?'"

One of the extra costs involved in converting to a Linux environment is in retraining the company's IT staff, which may be one reason that Robert Bragaglia, vice president of marketing of @Xi Computer Corp. in San Clemente, Calif., said most of the customers who request Linux boxes tend to be "more knowledgeable." But Zachary said that only 58% of companies that switched to open source software had actually had a plan for the move.

For smaller VARs, who have to compete against large, international systems integrators, open source software may be especially appealing. Bragaglia said that while tier one resellers could often get significant discounts on proprietary software such as Microsoft Corp.'s operating systems, open source software lets him compete against even the big players.

"I would love to sell more systems with open source, because at least that is a level field. Open source is free -- it's free for everyone," he said.

He also said that while the market is starting to warm to the concept of open source software, many customers -- especially smaller ones who don't have the resources to learn a new operating system -- opt for what they already know.

"We see [open source] as a growing phenomenon, but not necessarily the rule for corporate accounts," he said. "I think it's complacency more than anything else, [and] also the fact we have 15 or 20 years of Microsoft advantage" in the market.

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